Rafael Ramírez
People’s Minister of Petroleum and Mining
President of Petróleos de Venezuela, S.A.

Presentation of Management and Results of PDVSA in 2011

Caracas, 17 April 2012

Rafael Ramírez: Good morning. Welcome to the Simón Bolívar Hall, headquarters of the People’s Ministry of Petroleum and Mining and Petróleos de Venezuela, S.A.

I would like to greet the Vice-Minister of the People’s Ministry of Petroleum and Mining, general directors, the fellow deputies who are members of the Committees of Energy and Petroleum and Finances at the sovereign National Assembly.

I would also like to greet my fellows of the Board of Directors, Vice-President
Asdrúbal Chávez, and directors Víctor Aular, Ricardo Coronado, Wills Rangel, Orlando Chacín, Jesús Luongo and Ower Manrique.

I welcome partners, chairpersons, managers and representatives of the joint ventures of Western and Eastern Venezuela and the Orinoco Oil Belt; partners to the development of our Oil Sowing Plan; corporate managers; executive managers; deputy managers and directors of PDVSA, and other managers of PDVSA subsidiaries; Mr. Luis Xavier Grisanti, president of the Venezuelan Hydrocarbons Association (AVHI) and other chairmen, managers and directors who are members of the association; Mr. Mauricio Canard, president of the Venezuelan Oil Chamber and other members of different oil chambers, associations and federations who have joined us; Mr. Humberto Hernández, president of the Bolivarian Construction Chamber and other representatives; Mr. Argenis Morgado, president of the Venezuelan Federation of Productive Entities and other members; Mr. Miguel Ángel Pérez Abad, president of the Federation of Chambers and Associations of Artisans, Micro, Small and Medium-Sized Enterprises of Venezuela and other representatives; Mr. Luis Alberto Guerrero, president of the Association of Gas Processers and other members of that association; Mr. Luis Eduardo Niño, president of the Chamber of Consulting Companies (Cavecon); representatives of the Venezuelan Federation of Public Accountant Associations; representatives of the Venezuelan Banking Association and other representatives of banking and financial institutions; members of risk rating agencies and media specializing in financial matters; representatives of external auditing companies; fellow participants; distinguished special guests; media representatives; ladies and gentlemen.

Special regards to Fernando Soto Rojas, dear and respected fellow, the chair of the National Assembly Committee of Energy and Mines.

I am pleased to be here again in this hall, introducing to the country and our related sectors our operating and financial outcome of 2011 as well as  some aspects linked to the progress of our Oil Sowing Plan in 2011-2012 and the new term beginning in 2013-2019.

Pursuant to the Law, our Bylaws, last March 31 the Regular Shareholders’ Meeting of 2012 began in Petróleos de Venezuela. The meeting continued and ended last April 16. At that meeting, as set forth in our law, the strategic guidelines and policy on hydrocarbons mandated by the People’s Ministry of Petroleum and Mining were reviewed and endorsed, as well as the guidelines related to the business strategy for 2012 and PDVSA’s directions, in line with the political strategic guidelines on hydrocarbons and the business strategy.

Furthermore, the Board of Directors produced its annual report, the Annual Management Report, and the statement of the social and environmental management. Our independent public accountants presented the audited financial statements and finally, the Commercial Trustee submitted his report.

I would like to mention all these subjects that form part of all the oversight mechanisms existing over the oil industry, as a public company of the Venezuelan State, subject to all control mechanisms, subordinated and attached to the People’s Ministry of Petroleum and Mining and established mechanisms on accountability and presentation of results.

Today, we will share with you the major components of those results. However, all those papers are open to the public; they are available on our website pdvsa.com. There, the consolidated financial statements at 31 December 2011; the 2011 report of PDVSA’s Commercial Trustee; the Annual Management Report and the Social and Environmental Statement are posted. All those papers are public and available for the scrutiny of the Venezuelan people.

Here, I will introduce our journal on policies and strategies for the hydrocarbons sector, including the guidelines set by the Ministry to our national company Petróleos de Venezuela. It also includes the audited financial statements of external auditors; the firm KPMG through its representatives in Venezuela, Rodríguez Velásquez y Asociados; the report of Commercial Trustee Hermías Ferrer –a good report by the Trustee- and also the Annual Management Report, which specifies the issues related to our management for the year ended with our Regular Meeting of 2011.

The following are some of these main aspects:

Firstly, the opinion of our independent public accountants, who had full access to the statements, numbers and accounts of our oil industry and issued the following opinion. I quote: Opinion: In our view, the annexed consolidated financial statements reasonably present in all their essential aspects, the consolidated financial performance and consolidated movements of the cash of Petróleos de Venezuela S.A. (PDVSA) and its subsidiaries, at 31 December 2011, 2010 and 2009, as set forth in the standard, and its consolidated financial situation on the aforementioned dates, in accordance with international standards on financial information.” That is, they state that our industry is subject to all updated international standards on financial information for this kind of companies.

We appreciate the work of our external auditors -a hard, very complex and good work. All their remarks and notes are contained in the report we are submitting to the population.
Likewise, we have the Trustee’s Report, another mechanism set forth in the law. The Trustee highlights in his recommendations his opinion on the audited financial statements, which, sure enough, he has reviewed and comments at length. Let me read out as follows the Trustee’s recommendations: Based on the results of my work as Senior Trustee for the fiscal year ended 31 December 2011 at Petróleos de Venezuela, S.A. (PDVSA), in the performance of my duties, I recommend the Shareholders’ Meeting the approval of the financial statements on that same date, submitted by the Board of Directors of Petróleos de Venezuela, S. A. (PDVSA), as an overall expression of the financial administrative performance in the aforementioned economic period, which was done in accordance with the strategic guidelines and policies related to hydrocarbons; the guidelines related to the business strategy and the directions given by the Executive Branch for that same period. Hermías Ferrer, Senior Trustee.”

Based on that, we would like to introduce to you some aspects of our audited financial statements.

We intended to show in this presentation the fullest representation of the sectors closely related to the oil industry; further, we will disseminate these results for them to be freely checked by all Venezuelans.

The following is the first page of this report, which mirrors the consolidated statements of comprehensive income. We would like to highlight some aspects. Let’s begin with the revenues at 31 December 2011. Petróleos de Venezuela got world revenues for exactly US$ 124.75 billion, that is, a substantial increase over US$ 94.93 at 31 December 2010. First thing I would like to note concerning our revenues is that without a shadow of a doubt, Petróleos de Venezuela is the most important company in our country. Few companies in all Latin America have such income level. And it is one of the four largest companies in the world. We have a sound company in terms of its revenues for its activities.

With regard to operating income, they increased basically because of the recovery of the average sale price of oil and byproducts in the world market, including the average export price of the Venezuelan basket, which rose at 39%. If we assess the performance of other companies, according to their released financial statements, the income performance in 2011 versus 2010 of major world oil companies is as follows: compared to PDVSA’s revenues, Pemex, Repsol, Petrobras, Statoil, Total, ExxonMobil, Conoco, BP, Shell. We can see that Petróleos de Venezuela is among the first world class companies.

Let us go back to the consolidated statements of comprehensive income. A look at the item of costs and expenses yields US$ 89.52 billion ending 31 December 2011, a hike of US$ 9 billion over US$ 80.34 billion in 2010. As you can see, the constituent elements of the item of costs and expenses are basically related to the purchase of crude oil and byproducts, royalties, extraction taxes, and other imposts.

In delving into the purchases of crude oil and byproducts, a clarification should be made. It has been said over and over again that Petróleos de Venezuela buys products, particularly gasoline. Not at all! As a matter of fact, Petróleos de Venezuela consolidates the financial statements of its foreign subsidiaries. Our Citgo subsidiary, located in the United States, makes annual purchases nearly one million barrels per day of oil. The costs resulting from the purchase of crude oil and byproducts needed by this subsidiary for its operations are consolidated in the financial statements of Petróleos de Venezuela. And this has been among our permanent, soundest remarks on the so-called internationalization policy of the past; for we have succeeded in proving that the costs of foreign operations were carried to our national company.

For this reason, we have followed and will continue following a stringent policy of revision of our foreign assets. Since 2006 and 2008, we have divested some very expensive assets, such as Lyondell refinery and shares in pipelines, plants and equipment in asphalt refineries and more than 1,200 gas stations we owned on the East Coast of the United States. The purpose is for our foreign subsidiary to get Venezuelan oil and byproducts from our parent company instead of becoming a buyer of foreign oil and byproducts or keeping on increasing our costs on this account.

Note also our royalties, extraction taxes and other imposts, ranked as costs in our financial statements for US$ 17.67 billion, significantly higher than US$ 13.90 billion for our contributions at 31 December 2010. Notwithstanding, it is worth mentioning that such variation in the contributions is because in 2010, the settlement price averaged US$ 72 a barrel, whereas in 2011, from January 1 through April 17, the settlement price averaged US$ 94.76 a barrel; that is, royalties are in line with oil prices. However, since April 18, upon the entry into force of the Law which establishes the Special Contribution on Extraordinary Prices and Exorbitant Prices in the world hydrocarbons market, a ceiling was set for the payment of royalties. Following the enactment of the law, the performance related to our royalties has been as follows: we pay royalties to the National Treasury Office (ONT) up to US$ 70 a barrel. From there on, the income over US$ 70 a barrel goes to FONDEN, as provided in the Law of Special Contributions on Extraordinary Prices and Exorbitant Prices in the world market. We will witness a similar performance for royalties as long as oil prices are above US$ 70 a barrel.

A breakdown of revenues, costs and expenses shows a substantial, noteworthy number: earnings before contributions and contributions for social development and income tax of Petróleos de Venezuela at 2011 amounted to US$ 35.22 billion. We would like to show the country such a substantial number compared to any other world oil company. Before the contributions made to shareholders, for being a company owned by the Venezuelan State, this company got on account of its oil operations earnings for US$ 35.22 billion, far beyond the earnings ending 2011 at US$ 14.58 billion –substantial earnings. Compared with the earnings shown by other world companies; note that, with few exceptions, Petróleos de Venezuela has outperformed a significant group of international oil companies.

The performance of our company and our workers afford us such earnings at the national company. Now, this is a state-owned company; a company not answerable to private shareholders or the stock market of any foreign country. PDVSA submits these earnings to its Shareholder. Based on these earnings, our Shareholder apportions the special contributions and makes allocations to the programs of our owner, that is, the Venezuelan State. Ending 31 December 2010, special contributions were allocated as follows: Great Housing Mission of Venezuela, US$ 4.01 billion; social development, US$ 11.59 billion; FONDEN, US$ 14.47. Remaining earnings, before income tax, amount to US$ 5.15 billion.

Should PDVSA be a private company, it would likely pay dividends over US$ 35 billion and our managers would enjoy, like in the past, a policy of bonuses consistent with earnings. Nevertheless, this is no longer the case with PDVSA today. We are a public company of the Venezuelan State and all our earnings -as the State has entrusted us with the administration of the funds property of the Venezuelan people- are made available to the Shareholder to apportion them accordingly, to the interest of the Nation. Such number is very important, as shows the soundness of our operating and economic outcome.

Furthermore, we showed expenses for current taxes at US$ 5.17 billion and after the entry of net profit and continued operations come overall earnings at US$ 4.58 billion, followed by the apportionment of such earnings. Take a look of the breakdown, overall earnings attributed to the corporate Shareholder, that is, PDVSA Petróleo. They stand at US$ 2.72 billion. Notwithstanding, the earnings imputed to the shares of our partners in joint ventures total US$ 1.85 billion. That is, PDVSA does not impose on minority shareholders any contributions to the Venezuelan State. Instead, minority shareholders have joined us and have a larger share of profits relative to their managed volume and consistent with their performance. Such profit is significant, considering that private partners’ earnings almost double our share of profits per barrel.

What does this mean? It means that our oil tax system and the oil policy of the Venezuelan State has been steadily lashed and condemned by private companies for being presumably very stringent. However, a review of the private interest in PDVSA shows that private partners make a very handsome profit based on their efforts and shareholding in the country’s oil production. For this reason, companies, many of which have joined us at this event, remain in Venezuelan operations and take part in future projects. That is, Venezuela’s oil tax system affords the Venezuelan State what belongs to it as the owner of oil, but also allows our private partners that invest and work in the country along with us to get a very reasonable level of share of profits.

Let me inform that the Ministry I have the honor to lead as well has forwarded notices to partners for them to provide us with a reinvestment plan of part of those dividends in order to keep our output levels in line with the plan submitted to the National Assembly.

To our mind, a significant amount of those substantial earnings obtained year after year should be reinvested, considering that, except for some poor management decisions made in the past by some private enterprises, our partners to former operating agreements both achieved an excellent return on their investments and earned profits.

Joint ventures submitted to the National Assembly a development plan they must press ahead with under the supervision of the People’s Ministry of Petroleum and Mining. For this reason, we have told Petróleos de Venezuela and private partners, by means of the Venezuelan Corporation of Petroleum (CVP, for its Spanish acronym) that they should produce a reinvestment plan of those earnings.

I would like to avail myself of this opportunity to refer to the decisions announced on Monday, April 16, by Argentina’s President Cristina Kirchner. Venezuela fully supports the sovereign decisions made by the Argentine Government because it understands that all governments are entitled to make sovereign use of their natural resources. We contacted Minister Julio De Vido and made available all our operating capacities and legal policies of the Ministry for being another lesson to be learned by companies. Fortunately, in Venezuela, we already went through processes in 2005, 2006 and 2007. Our legal oil tax system has been cemented and strengthened. Presently, it is in a stage of growing expectations of oil production. The source of the dispute between Repsol and the Argentine Government has to do with this situation: the request by national States for reinvestment to increase the oil output capacity, profits and extraordinary dividends resulting particularly from rising oil prices in the world market.

Interestingly, when the laws that established special contributions on extraordinary prices and exorbitant prices were set, the rationale was that the natural resource, that is oil, is what is valued in the world market. That is, the cost of production of a barrel is similar, but earnings vary significantly if oil prices go from US$ 40 up to US$ 140  per barrel. National States are fully empowered to request the reinvestment of these extraordinary revenues to benefit and increase the output capacity. The case of Argentina is far more serious, because for many years its oil production has been declining. Argentina is a great country with a great domestic growth. Argentina’s staunch position concerning its request for reinvestment from transnational companies is necessary to increase its capacity. For this reason, we fully support the decisions of President Cristina de Kirchner and have made ourselves available to make headway with the enforcement of Argentina’s sovereign policies.

Back to the presentation, the entry of costs and expenses shows tax contributions, royalties as well as oil and byproducts purchases made by foreign subsidiaries. This is a survival of the former internationalization policy that we have continuously denounced and will continue minimizing.

It is worth mentioning that our net profits totaled US$ 35 billion. Based on this, extraordinary contributions to the Shareholder, our owner, the Venezuelan State, are reflected in the allocations made to the Great Missions, social development, and FONDEN. Therefore, we dismiss claims over PDVSA putting at risk its operations as such obligations are not met with the company’s profits. Finally, we would like to stress that after deducting the income tax, our net operating profits stand at US$ 4.58 billion out of which an interesting share is owned by private partners.

The second major aspect in the consolidated financial statements of Petróleos de Venezuela and its subsidiaries are the assets, which are critical in any oil company. Our assets total US$ 182.16 billion at 31 December 2011, a hike of more than US$ 30 billion over the US$ 151.76 billion recorded in 2010. Furthermore, among all the constituent elements of assets, the item of property, plants and equipment is noteworthy at US$ 98.22 billion, an increase of near US$ 10 billion relative to US$ 87.63 billion in 2010. The item of property, plants and equipment at 31 December 2010 shows US$ 87.63 billion, and US$ 18.15 billion on account of investment. It is a major component because in 2005 the Oil Sowing Plan started; significant inter-annual investment levels have been recorded that strengthen the real economy of a company such as its property, plants, and equipment.

In the sections documents and accounts receivable we can note a debt composed of two portions: the first portion of US$ 7 billion related to our management and another portion related to commitments and agreements with the Venezuelan State at US$ 20 billion. This year, the State has reimbursed that contribution for the development of the Extraordinary Plan of the Orinoco Oil Belt. As much as US$ 2.5 billion was injected. This year US$ 7 billion will be received for sales of foreign exchange to the Central Bank of Venezuela. As a result, we will substantially reduce this item ending 2012.

Regarding owner’s equity, it stands at US$ 73.88 billion with a reduction of US$ 1 billion compared to 2010. That year, it was a tough situation for the Venezuelan economy due to plummeting oil prices in the world market. However, extraordinary dividends were allotted to the Shareholder and that is shown in the decrease of the owner’s equity.

As for liabilities, although on many occasions this has been fully explained to the Venezuelan people, there is the need to warn the representatives of associated and related sectors about a systematic smear campaign against our oil industry. In the context of open markets, such a situation could be labeled as unfair competition by some individuals, company or sector with a position of dominance over mass media. We are aware that, for political reasons, PDVSA is saddled with quite a few falsehoods. We are used to such claims and, as we beat the oil sabotage, such a campaign has never stopped on the main misinformation media outlets in the country. We continue moving forward, for ten years we have been building on a reality and a company. While some private sectors have moved far away, most of them are with us.

We want everybody to have access to the issue of PDVSA’s debt, mirrored in liabilities, at US$ 108.27 billion, a hike relative to US$ 76.45 billion in 2010. Nevertheless, for the experts of the financial world, in assessing the shareholders’ equity/ liabilities/ total assets ratio, we find great strength in our oil company. It is worth mentioning that we have not shown the 297.6 billion oil barrels we have in reserves; we just show the performance of our property, plants, equipment and operations.

The debt issue has been much reprobated. Notwithstanding, indebtedness is a scheme commonly used by all expanding companies in the world. What about our debt? A thorough review shows the amount of US$ 32.49 billion. It is a financial debt that has been rising compared to last year.

In the following slides we will appreciate the breakdown and distribution of PDVSA’s debt: Syndicate of Banks led by BNP Paribás for development of refineries; group of banks led by the Japan Bank for International Cooperation (JBIC). Both of them are conservative, demanding institutions concerning financial choices. More than four loans from the JBIC for the refinery and oil projects in Tomoporo; Rafael Urdaneta gas projects; Barúa-Motatán; Western Cryogenic Complex; deep conversion projects for El Palito and Puerto La Cruz refineries, in the states of Anzoátegui and Monagas, ongoing projects with earth-moving; the Valcor project in our Puerto La Cruz refinery; procurement of Aframax oil tankers and asphalt tankers; two of these Japanese tankers are already operating in the country.

We also have with Banco Espíritu Santo important operations for gas injection trains in Anaco Profundo, Jose 250, major maintenance operations of refineries; with China Development Bank, for shareholding in Abreu e Lima Refinery in Brazil, which will be a very important asset; from the Deutsche Bank, for the desalting plant at Paraguaná Refining Center. These are projects that are being developed.

Likewise, PDVSA has relied on national finantial institutions such as FOGADE, the Banco del Tesoro, and Banco de Venezuela. This is part of a policy of national banks involvement in lending for the oil sector. We are set to use domestic savings to build a production model; we have used these borrowings to meet the requirements in bolivars in domestic projects.

It is worth mentioning that we are using the lending in US dollars to bring in equipment and technology, and the lending in bolivars to develop a set of agribusiness complexes, infrastructure, pipelines and valves, and manufacturing plants for which we have made progress.

We have also been given loans by Bandes for procurement of ships and of the PDVSA bonds issued in 2007 and Citgo bonds, also included in this statement. Debt heightened by US$ 34.89 billion. However, this is tied to a development plan. For instance: the owner of a shoe shop has plans to widen up his/her capacity. Nobody will make it with his/her own cash flow. In order to expand his/her infrastructure, such as the construction of a nearby building, he/she will head to the bank and apply for a loan.

We have been attacked a lot out of the debt; double standards apply. All around the world, people must be happy because their domestic company is creditworthy for the global market; indisputably in good standing, fit to get loans from world banks. Such loans are neither aid nor subsidies; they are loans from banks which scrutinize us from top to bottom. That is, banks do not lend to bankrupt companies; banks lend to developing companies. Reference is made to major institutions, such as China Development Bank or JBIC, very demanding institutions which thoroughly review our numbers. PDVSA keeps a steady financing flow. Nobody will tell that the Japanese are communists or followers of President Hugo Chávez. That it is what is going on.

Furthermore, there is the need to elaborate on the operation of the Chinese Fund we have with the People’s Republic of China, as the charges made are big lies that harm the country. The Chinese Fund is an extraordinary way of funds uptake for our Nation; it is part of the agreements between our two governments, nothing less than with the second largest economy of the planet. With none of those countries the United States entered into a partnership to raid into Iraq. We intend to sell oil and byproducts to China which, with its steady economic growth of at least nine points every year, is a major energy consumer in quest of primary energy sources for power generation.

We have a supply agreement with China National Oil Corporation. We sell it oil at world prices and they deposit the payment in an escrow account at Bandes, which takes on the debt of the Chinese Fund. Its law was even amended for it to act in this capacity. Next, with this money, the Bandes repays the corresponding amount of the debt service and returns to PDVSA with substantial surplus that allows us to cover all operating, production, refining and transportation costs, among others.

We are just using a mechanism contemplated in the Hydrocarbons Organic Law, under which the domestic operating company may sell oil on account of the Venezuelan State. We have this possibility; we just need our costs to be covered and this is what Bandes does when returning to us the surplus. This is the borrowing facility and that is not a secret.

Two Chinese Funds have been established. Under the first one, US$ 4 billion has been received, which was renewed for additional US$ 4 billion; plus another loan, larger and for a longer term, amounting to US$ 20 billion, because we are talking about term loan. By these means, the Republic of Venezuela has raised US$ 32 billion.

In oil, the following sales have been made: for US$ 27.80 billion; US$ 10.48 billion have been repaid, and US$ 11.77 billion have returned to PDVSA to hedge our operation. Therefore, the claim that such debt is owed by PDVSA is a big lie; in fact, it is owed by Bandes. Saying that PDVSA sells at a discount is also untrue, for it sells at world prices. As a result, we have a US$ 11.77 billion surplus; If we were selling at a discount, we would have none. This surplus enables PDVSA to recover the production, operating, refining and transportation costs of the crude oil caused by the shipments to China.

Furthermore, I encourage you to review the slide which shows daily oil prices. For instance, that of Monday, April 16. You can see the green bar, which is the WTI; the blue bar represents the Venezuelan oil basket; the red bar means OPEC and the black bar refers to the Brent, which is being traded at US$ 121.83 a barrel, whereas the OPEC basket stands at US$ 119.10 a barrel. And for the first time ever, the Venezuelan basket is over the WTI. Such hike is because we are selling now more oil and more fuel oil to China and the Singapore market pays better for these products. That is, we have a differential of US$ 12 in our sales because we are selling to a better market. The market of the Atlantic Coast, where the WTI is located, is marked by devaluation of the US dollar; competition of other heavy oil producers, such as Mexico, among others, and shows the severe economic crisis still lambasting the United States.

Instead, this market, composed by China, India and Japan, is on the rise and shapes the world demand.  We will continue selling oil to Asian markets because, among others, they are a superb business for the country. Each bolivar and each dollar yields country revenues for US$ 979 million a year. It is important for you to note that each dollar counts.

Speaking of dollars that count, something did happen in the fourth Republic. Let me bring up the Trustee’s reports of 1999-2000. They are very important, because they were the first Shareholders’ Meetings held by the Bolivarian Revolution when Alí Rodríguez presided over PDVSA and was the Minister of Energy and Mines at that time. And Mr. Rafael Darío Ramírez Coronado, my father, was the PDVSA’s Trustee. This is an important report because it depicts in detail the financial situation. The page 22 of the report deals with supply agreements with Citgo and investments abroad. Concerning an oil supply agreement entered into by PDVSA and the US-based subsidiary, in 1999 a reduction of the parity market price at US$ 2.39 per supplied barrel; that is, there were sales at a discount. This is evidence of a discount policy to sustain Citgo in a refining compound in the first economy on planet.

For this reason, when some sectors rail on PDVSA for selling oil to Caribbean countries, I think that they cannot claim the moral high ground. Formerly, oil was being given away under such agreements during the internationalization policy. Prices were set at US$ 2.39 a barrel and the Venezuelan oil basket in 1999 was US$ 9 per barrel; that is, a 26% discount. Compared with the present time, in 2012, with oil prices at US$ 114 per barrel, 26% discount would be like selling oil to the United States at a discount of US$ 30 per barrel. This report proves that in the country there was a continued and systematic policy of transferring wealth abroad, particularly to Citgo refining compounds in the United States, and Ruhr Oel, in Germany, at discounts stipulated in the supply agreements. That was a perverse practice of the old PVDSA, because in this way, funds would be transferred abroad to finance its business, but also demolished the tax system of the Venezuelan State because royalties were collected from the settlement price. The Bolivarian Revolution put an end to such ominous policy.

Such policy ended when we started to release in our journals the crude oil pricing. Whenever you are told that PDVSA sells at a discount to countries like Cuba or China, you are advised to reply: “It is a lie because PDVSA does not set pricing anymore.” PDVSA cannot make an agreement with Citgo at a discount of US$ 2 or US$ 30 per barrel. The People’s Ministry of Petroleum and Mining releases journals with the prices for each Venezuelan crude oil, the result of very complicated pricing, yet technically reasoned.

For instance, a price is set for Merey 16, Mesa 30, Boscán. Under this pricing, there is no discount. Venezuela does not sell oil at a discount to anybody. This perverse practice under the old PDVSA was abrogated when the People’s Ministry of Petroleum and Mining discharged its duties.

Further, in the item of debt and investments, a review of the series since 2007 shows that the debt has increased on an inter-annual basis up to US$ 32.97 billion on aggregate. But also investments are higher. Our investments have surged by US$ 11 billion in 2006; from US$ 15.40 billion in 2007; US$ 13.50 billion in 2008; US$ 10.60 billion in 2009; US$ 16.08 billion in 2010, up to US$ 66.77 billion. That is, PDVSA gets into debt to raise the investment levels that are over 200%; the same indebtedness level of the same period.

This year, we will take additional loans. For instance, with Chevron, a partner in Boscán field, funding is sought for the projects of the Bolivarian Government. Likewise, we seek borrowing from CNPC to enlarge production at Sinovensa joint venture, get fresh capital for the country, and step up production. Asserting, on the one hand, that we are unable to attract investments, and reprehending us, on the other hand, for attracting investments is contradictory.

I would like to refer also to the articles and deplorable campaign against our company, which I should rebuke to honor 98,000 PDVSA’s workers, men and women, who work hard day after day to move ahead with our production. They are 98,000 honest, professional, very young workers who are carving out a career and making their best to advance the Oil Sowing Plan. All of a sudden, comes some hard-core rightist advisor who lies and lies continuously and demeans our workers and our company. Some foreign investor, not even proficient in Spanish, could be caught off guard and fall in that trap. For this reason, there is available information for everybody to review, explore, query into it.

Auditors’ details are in the report together with their notes, in accordance with international standards. For this reason, we have solicited the services of renowned first world class firms, such as KPMG, precisely because we are subject to the usual world scrutiny in the financial area. We welcome any committee from China Development Bank or Banco Espíritu Santo and take pleasure in seeing them, for instance, checking the numbers. We are open to review.

Some would say, in looking at the slides, that oil prices are very high, that this is something circumstantial. Nevertheless, a look of the time variation of these indexes in the item of income shows a consistency. Since Commander Chávez took office, he has taken special care of the recovery of our oil prices. It is logical. The economic basis of any oil producing country lays on oil income. Otherwise, no development plan could be undertaken.

Under the fourth Republic and the old PDVSA, a volumetric policy was in force. It was a continued violation of OPEC quotas that tried to flood the oil market and keep prices at rock bottom. Revenues, no matter the higher volume, were tiny. Our President Commander started to restore oil prices with actions such as the OPEC Summit in 2000. This Summit brought up the Venezuelan proposal of a price band between US$ 22-28 per barrel made by Alí Rodríguez, then Minister of Energy. Thus, the price recovery began, peaking in 2008, and, accordingly, more revenues. As we cautioned at that time, such situation stemmed from a financial bubble that tumbled oil prices shortly after. In January 2009, the basket was at US$ 35 per barrel. However, except for that, we have gotten world total income with a clearly upward trend.

Another financial index, such as assets, was around US$ 48 billion in 1998. Next, a substantial increase began in 2006, when the investments of the Oil Sowing Plan started to show up. Again, an upward trend in assets can be seen at a 267% rate.

In reference to investments in the oil sector, no investments would be made under the old PDVSA. Its investment levels stood at USD 3 billion to keep operations, yet they would not grow. The growth went to transnationals at Orinoco Oil Belt under the policy that the State did not interfere, and transnationals were free from controls. It was growth in exchange for sovereignty. We were with the old PDVSA. Later, the coup came. Not long ago, we celebrated ten years of the defeat of the coup. Please, note the income drop.

Years 2003 and 2004 were dire for PDVSA, because, among other things, we were restoring the whole system; recovering the industry. The coup resulted in US$ 18 billion in losses; that is outrageous. Nobody can understand why those meritocratic gentlemen did it. In August 2005, we launched, under Commander Chávez, the Oil Sowing Plan. Unprecedented investment levels systematically emerged: US$ 5.83 billion in 2006; US$ 11 billion in 2007; US$ 15.44 billion in 2008; US$ 13.54 billion in 2009; US$ 10.70 billion in 2010, when oil prices plunged; US$ 17.53 billion in 2011. The Council of Ministers, on April 16, passed the consolidated budget of public administration and the budget of Petróleos de Venezuela amounting to US$ 18.50 billion this year. Investments continue on the rise and we keep on expanding the oil industry at a 282% investment growth rate.
 
Nonetheless, they ride roughshod over us: Where are PDVSA’s investments? They despicably comment that we are buying chicken. That is true; we take pride in buying chicken for our people. However, our core business, exploration and production, take the most important growth. Here the series come: 2006, 2007, 2008, 2009, 2010, 2011: three thousand two hundred; four thousand two hundred; five thousand seven hundred; six thousand eight hundred; five thousand seven hundred; eight thousand one hundred, respectively.

In refining also: 1,090; 1,700; 2,140; 936; 1,888. Gas, a record hike in the gas budget. Trade and supply. Food, here it is: US$ 1 billion, out of a total amount of US$ 16 billion. Non-oil sector, 370, and our power self-sufficiency projects, US$ 953 million.

Now, therefore, we have here a substantial investment, which shows where we are investing. Only this way we can sustain our production. As you know, our production naturally declines every year; meanwhile our colleagues at Exploration and Production should cover such decline.

Our net worth is here, in full view. In 1998, PDVSA’s owner’s equity was at US$ 32.03 billion; today it counts on US$ 73.88 billion, a 128% growth rate.

Owner’s equity is an interesting topic. Note in this slide a breakdown of the owner’s equity. This is our oil industry from 1998 through 2011, with an invariable stock capital, of course.

As for accumulated losses, the Trustee’s report of 1999 found, based on the audited reports, that Petróleos de Venezuela recorded US$ 14.62 in losses. In this slide, please do not get mixed up, the Finance Team depicted losses in blue and profit is red, very red. We inherited it; we discussed a lot with our external auditors what to do with such bequeathed situation. When we began to denominate all our numbers in US dollars, pursuant to world standards, such numbers would show the reality. There were losses. Losses notwithstanding, the old meritocracy would apportion bonds. In bolivars, in a situation of inflation, there was excess of bolivars, but all of it was a lie. We found this company with US$ 14.72 billion in losses and owner’s equity at US$ 32.03 billion. Note that owner’s equity was below the company’s stock capital.

In that meeting, one of the decisions made was to denominate financial statements in bolivars in order to halt dividends apportionnement, therefore correcting such a mishap. Losses began to decrease in 1999, 2000, 2001. In 2002, the oil sabotage occurred. Lastly, in 2007, our company managed to turn into positive numbers, finally reaching a surplus of US$ 4.15 billion; US$ 1.80 billion in 2008; US$ 1.30 billion in 2009; US$ 5.40 billion in 2010, and US$ 4.84 in 2011. PDVSA is now a healthy company; an audited company in all its financial terms and indexes.

This chart provides a better look of what I just said. Once again, the blue color expresses the losses, while the positive numbers are in red. Profits, we got them at US$ 14 billion. PDVSA was a company in the path towards privatization, where 500,000 barrels had been handed over to operating agreements, as well terminals, tanker fleet, gas drive operations, everything. Today, we have a totally recovered company. We have nationalized more than 204 companies in the oil sector. Nowadays, we can affirm we have taken control of that sector; we have invested, and we have a company with surplus and comfortable financial numbers, as far as we are concerned.

Let us now address the issue of our labor force. I am pleased to inform that this presentation is being broadcasted via videoconference to all our departments. I send my regards to all our workers, speaking of which I introduce you to our comrade Wills Rangel, president of FUTPV, the Bolivarian Workers’ Union; he is a fundamental workers leader. In the labour field, we have eradicated by 95% the hideous outsourcing practice. We have hired, as in-house personnel, jobseekers standing at the gates of PDVSA’s facilities on the East Coast of Maracaibo Lake. Contractors contended that their rights were being whisked away. Some have fustigated us as they claim that we thickened the payroll. That’s not true. We paid the contractors for that labour force. Certainly their invoices complied with the terms of the oil-sector collective bargaining agreement, but contractors would not take serious care of workers and reassure them in their posts. It was a perverse employment relationship.

Fortunately, we have overturned that. Look that as our labor force has grown, outsourcing practices have shrunk. Of course, a number of hired personnel will always remain because there are time-limited works, such as the construction of an upgrader, refinery, scheduled downtime; all of this is temporary. However, all our standing operations are conducted by a payroll fully embedded in the structure of Petróleos de Venezuela.

We close then this issue of the company’s background; here the charts, numbers and series go. However, there is still a remaining issue, central to our core policy: PDVSA’s contribution to the Nation. It is particularly important, because if information is partly supplied, some could say -particularly state governors- that funds are not flowing. We have considered three items: tax contributions as set forth in the law and budgeted; contributions to FONDEN, which are also established by the law, yet do not flow into the Treasury; and social development.

Let us have a look at the performance of such income to the Nation. It has to do with the oil policy and our tax system. We contended and defeated the so-called oil opening. In the 1990’s, our tax system was knocked down by the transnational interest in complicity with the old PDVSA.  Note in the slides the performance of the tax system under the oil opening, that is, 1% of royalties; 34% of income tax.
Petróleos de Venezuela had a 30% share in a superb business, such as the oil business. Tell me about any other business, but we are dealing with oil, with a recovery factor of less than 8%. Out of the gross income of one barrel, the State was left with 47% only, whereas transnationals, through strategic partnerships, recieved 53%.

I knew about a former minister of the fourth Republic blasting President Cristina Kirchner. He was one of those who allowed our wealth to be plundered. Now, he dares condemning a Head of State, President Cristina Kirchner, for taking such a bold, sovereign action. Well, this occurred with the blessing of the old PDVSA, the experts of the fourth Republic, its ministers and congresspersons, in the face of the oil opening.

Tables show gross income per barrel. That is, out of a barrel at US$ 100, transnationals, private companies, received US$ 53 and the State was left with US$ 47. We overturned that upon the policy of Full Oil Sovereignty. It is our duty. Nobody is to censure us for that. It is the duty of the ministry, and its national company is the tool to accomplish such a goal. We ought to capture everything to our country’s benefit; later on, we will apportion it in a sovereign way. But all and all, we ought to capture as much as we can from a barrel, a natural resource of our own and depletable as well. Consequently, we do have a tax system enabling us to get 94% out of the gross income per barrel.

That is the policy. Our private partner holds an average share of 6%. Now, that 6% share yielded in 2011, US$ 1.87 billion in profit. Thus, it is a significant 6%. We want to have private partners because they supply technology and knowhow. Furthermore, have drafted an ambitious plan that requires everyone’s input: domestic, private, foreign parties, but subject to our terms. Well, our policy is reproved. But, gentlemen, this is our nature, purpose and responsibility. Otherwise, I would say that our oil policy is a failure. Not at all, it is absolutely successful. What is the reason for it? It is because royalties went from 1% to 33.33%; taxes went from 34% to 50%. The shareholding of Petróleos de Venezuela went from 30% on average to at least 60%, and we pursue a 20% recovery factor. This has full name: President Commander Hugo Chávez. He is the one who has bolstered it. In a country like ours, if you let economy behave this way, you then need to take social benefits out from workers; you need to introduce a neoliberal big package; hand hospitals over; privatize education, etc. Hence, that was precisely the source of the 1990’s unrest.

Look in this table the 2001 bolivars. Note that contributions have been on the rise, but there is a change in parity by VEB 599.25 billion. And note how it has soared in US dollars.

The next chart shows the upward trend in contributions compared with the last years of the old PDVSA, during the fourth Republic. PDVSA was becoming indebted in order to feed the Treasury. The Administration of President Rafael Caldera was suffocated. They lacked willingness and political commitment to confront transnationals and do what Argentina’s President Cristina Kirchner just did, or what President Chávez has done, for that matter.

The point at issue is political stance. This is the amount from a more graphical view. If you delve into tax revenues in the last years of the fourth Republic, you will realize that the oil meritocracy put the fourth Republic in jeopardy. In addition, they were anti-nationalist.

This is the chart in the light of the law then in force, the 1943 Law on Hydrocarbons, under the administration of General Isaías Medina Angarita, where the royalty stood by 26 2/3. Any Mexican audience would be thrilled to know the profits remain in Mexico. We are in Venezuela. I think that all Venezuelans who feel close to their homeland should be happy to have this money kept in the country.

Regarding tax revenues, tables show a ratio of US$ 226 billion. Since the day when royalties were upregulated from 1% to 16 2/3, US$ 22.18 billion have flowed into the country. That was on October 10, 2004, when we changed the income tax regime, formerly non-oil tax, from 34% to 50%, to achieve a total amount of US$ 2.57 billion. On account of extraction tax, where 33.33% was established for all oil businesses, we collected US$ 9.98 billion; for export registry tax, US$ 2.88 billion; for surface tax, US$ 1 billion. The change of royalties from 16 2/3 to 30 accounted for US$ 57.60 billion. And the migration of operating agreements, with the consequent cost reduction for PDVSA, amounted to US$ 6.37 billion. That was PDVSA’s saving after getting rid of operating agreements.

Following the migration of those companies operating at the Orinoco Oil Belt to joint ventures, PDVSA’s dividends are apportioned as follows: social programs, US$ 75 billion; FONDEN, US$ 44 billion; and Great Housing Mission of Venezuela, US$ 4 billion. In all, PDVSA has provided the Republic with a total amount of US$ 226.28 million. Those are the contributions to social development. Let me recall the slide on PDVSA’s earnings, which accounted for US$ 35 billion. Then, our owner instructed: “Now, it’s time to fund housing, social development and FONDEN.” This is the right thing to do, not the other way around. It’s in this order that our contributions are channeled.

Our input totals US$ 123.69 billion, distributed among social development, FONDEN,  FONDESPA, the electricity sector, the Chinese Fund, communities, other contributions, Mission Ribas, Mission Barrio Adentro (Health assistance), Mission Agrovenezuela, agricultural projects, Great Housing Mission of Venezuela, infrastructure, etc. That is our direct share; and such is the people-oriented nature of our policy. We have remarked that this is a national policy and I would like you to understand that it is an actual people-oriented policy; it is a State-owned company joining efforts with the State to fight poverty, to beat capitalism. We cannot stay out of it. We are not ExxonMobil managers who will not apportion dividends. We work for the Venezuelan State. All we get goes there.  Furthermore, we are happy with our actual role; because we know that we are laying the foundations of a future, of a great country for our children.

Let us tackle a key issue of this policy: oil prices. I would like to start by oil production. This is another thing for which we are stigmatized. They suggest that our production is low and stagnant. Therefore, let’s talk about price policy.

We are an OPEC founding State member. We are a full fledged member. During President Chávez administration, our President has gained an indisputable leadership inside OPEC. The OPEC is meant to regulate prices in the oil market. If it fails to do it, then consumers will, as the Texas Commission used to do it in the United States prior to OPEC. Otherwise, some would share out the market. We can see that prices in 2008, after the financial crisis, plummeted to US$ 35. Then, the OPEC has agreed upon a cut of 4.2 million barrels; this agreement is in force.

When the OPEC fails to work in this direction and mistakes are made such as the Jakarta Conference of 1997 - old PDVSA was present there- things turn out as expressed by the sad remarks of a minister of the fourth Republic: “the OPEC is a club of Pinocchios”. Venezuela and some other countries did not abide by the cut and production jumped; oil prices plunged. When we arrived, we found a price of US$ 10.9- US$ 11 per barrel. There is a close, binding relationship between oil supply in the market and oil prices. It is logical, yet sometimes it is not understood.

Now we see the Venezuelan chart. I would like to tell all the sectors linked to the oil sector: do not take any wooden nickels. We had such production level in 2008; it was a good year for us. In September 2008, we even had a Volumetric Committee. We headed for 3,400,000 barrels per day. That was our curve; we were heading that direction. Then oil prices sank; we had US$ 12 billion; an OPEC meeting was held in Oran, Algeria, and we agreed to cut four million barrels. We had to cut 364,000 barrels per day. And we proceed accordingly.

For us, as we will see later, managing cuts is much more difficult when compared with countries which produce light oil and have fewer wells. Nevertheless, we tried to rotate the cut among all our companies and areas; otherwise, our oilfields would suffer if the cut was applied to one oilfield in the West only. Just remember the damages caused to western oilfields by the oil sabotage, where meritocracy champions shut down the production in the West. From that moment on, we lost power in the oilfield and have experienced a significant decline. Besides managing our cut, we had –unfortunately, despite the investments and our efforts- to make some cuts that reduced our output to 3,011,000 barrels. We have kept steady. Some anti-nationalist sectors put the blame on us and state: “PDVSA’s production is stagnant; production has not climbed.” It will not climb, for they should realize that it is a deliberate policy to cut production for prices to recover.

The line below in this chart is our average price. We used to have extraordinary prices in our oil basket at US$ 133 and US$ 140 per barrel. Note that it fell down to US$ 35. This, for the country, is a tragedy, because the country income is mostly made up by oil revenues. Should we refrain ourselves from curtailing the output and utter: “we do not mind the OPEC decision; we will keep on producing because daily newspaper El Universal is fingering me; we will keep on producing because daily newspaper El Nacional is nasty at me,” oil prices would remain here. We need to make decisions on volumetric policy to keep our price. Note, then, the output-price ratio.

The oil GDP recorded a 0.6% increase during the last quarter. It is certainly a modest surge, though oil prices will not move. This does not mean that we lack rigs or are not working. It will not move because GDP measures, compares volumes. If there is a quarter in a year versus another quarter at the same volumetric level, the GDP remains there. Unfortunately, no GDP is figured out from price recovery; otherwise, we would be high on the sky. Anyway, I would like to clearly set our position regarding output. Such position has to do with the defence of oil prices. Of course, this does not mean that we are not to work on production capacity.

Now, a historical overview of our prices. Pay attention to how the policy of Commander Chávez, together with the efforts of the OPEC, has borne fruit, resulting in price recovery. When we were at these levels, there was a volumetric policy; oil GDP was advancing. However, watch carefully, domestic income was rock bottom.

Let us talk about production. To understand our position as to price, we will address production, and I would like to show you again this slide. In saying that Venezuela’s oil production is weaker, village bullies lie and leave out some facts. Venezuela experienced this incremental production up to a maximum level of 3,700,000. We were the first oil exporter in the world. That’s the bare truth. From 1925 to 1970 we ranked first until the countries of the Persian Gulf appeared on the scene. Since then and around 1986, when PDVSA was born, country production levels stood at 1,682,000 barrels. Nothing of that is mentioned or commented. It is just asserted that the Bolivarians’ PDVSA has destroyed production. Later, after the findings in northern Monagas state and the activities in the Orinoco Oil Belt, Venezuela regained its output level of 3,000,000.

This gap in the chart is the oil sabotage; this other gap is the OPEC output cut. Nonetheless, we have kept steady. There is a reason for it. Sure enough, the technical sector quite understands it. Production in some basins, Barinas-Apure and the Lake has been downward because they are mature fields. The curve down there points to the decline in our production in the West; they are depleted fields that have been operating since 1914; they are very old. For nobody to argue that this is under the administration of the Bolivarians, we also put the US curve. I just want to recall a real fact: oil depletes.

In full-production times, around 1970, the United States had an output of 9,408,000 barrels. Nowadays, they produce 4,273,000 bpd. Oil, my dear fellows, depletes; it finishes off. For this reason, for us, the emergence of the Orinoco Oil Belt as an oil province, a virtually virgin oil basin, is a chance that promises oil growth over the next 300 years. It is a fact.

When I told you that for us, managing an oil cut was more difficult, it is because some attributes of our basins need to be reviewed. In Venezuela, we have 19,115 active wells; an average productivity in each well of 188 barrels, and an average gravity of 21.6. Well, we have more troubles to manage cuts compared with Saudi Arabia, a country with different oil attributes, origin, and rather favorable quality. But, watch carefully, they need only 1,500 active wells. We have 19,000. And each well yields 6,500,000 barrels, ours, 188. Does it mean that we are more inefficient? No. It boils down to the characteristics of our oil.

By means of comparison, we included the US oil sector, as old as ours, or a bit older. If we have 19,115 wells, they need 526,000 wells. And their productivity average is 10 barrels per well. These are the conditions we have to deal with. We need service, workover and production drills. In brief, our production is far more complex than theirs. And most wells are in Maracaibo Lake; 10,000 wells where everyday 6,000 men and women have to sail to operate those wells. It is a very complex operation, yet the core of our production.

I could not help showing you this slide, because the opposition leaders insist in stressing our sinking production; the only time in history when production slid was during the oil sabotage, where they caused a drop, in 2003, to 25,000 bpd of oil. After that, we have remained here. Always with the normal fluctuations, we have handled our 19,000 wells, yet with a steady production that will not vary, as long as another decision is not made regarding oil prices.

We are already finishing. Lest’s talk about Oil Sowing Plan. Some breakthroughs for our related sector. In order to set our Oil Sowing Plan, we had to exactly ascertain our resource base. Again, oil is a depletable resource, it is a natural resource. Project Magna Reserva was an initial part of our Oil Sowing Plan; it had to do with launching the Orinoco Oil Belt operations, estimating our oil reserves and making them a resource base for the Plan.

Well, that was a very successful program. When we arrived here in 1999, our oil proven reserves accounted for 78 billion barrels; near 35 billion, or 36 billion of which came from the Orinoco Oil Belt. They would call it bitumen. We, at the ministry, changed all that, and the CVP undertook a project called Magna Reserva. I would like to recognize the work of all the fellows of CVP, INTEVEP, PDVSA, the ministry.

And we started to certify our reserves. Firstly, as you know, quantifying; subsequently, an independent certifier attested to it. They are two processes. We carried out a comprehensive study of the oilfield; we revised all that. Today, our reserves total 297.6 billion barrels of oil.

That is, the largest oil reserves in the world. Now, therefore, they immediately retorted that it was our invention. However, we sought external certifiers; incidentally, a Canadian firm helped us certify it. The report of the US Geology Service –I encourage you to review it- reads: “at the Belt, we have the technology that allows us to increase the recovery factor, not by 20%, as Venezuelan authorities claim, but a 45% recovery factor.” And they add: “Therefore, recoverable reserves at the Belt amount to 511 billion barrels of oil; twice as much as our estimations.”

Interestingly, because we, at the Orinoco Oil Belt, have told our partners –all of them are here- we have told them that we needed to include in design, in investment, facilities for second recovery. We will produce with a recovery factor of at least 20%, yet we will prepare the ground, because these projects could last up to 34 years; we will prepare the ground to keep on augmenting our recovery factor in the future. We do not allot new areas, but foster the increase of the recovery factor. I am certain that because of quality, goodwill and attributes of the companies that joined us at the Orinoco Oil Belt, we will attain this goal. At some point, we will also appropriate this technology to expand the recovery factor. As a matter of fact, there are pilot projects already at the Orinoco Oil Belt, where we have a 40% recovery factor. We will manage it; it just a question of time.

Importantly though, we have here a substantial resource base. Unlike other oil producing countries –the North Sea, Indonesia, Mexico- we are not declining, we have a significant resource base and will develop it. And this allows for positioning. Let’s go back to OPEC. The OPEC holds 80% of world oil reserves. Non-conventional oil may emerge here or there, but most oil is in OPEC’s hands. And Venezuela holds 25% of the OPEC reserves. This also confers us 20% of world reserves. For us, it is a tremendous strength, not only because it helps us understand and comprehend that the OPEC is our natural coordination forum, but also because it provides us with sound foundations to build what were are constructing, as well as strategic horizons for production. In default of such resource base, we would be speaking here into the air. We could not outline any plan.

With regard to gas, Venezuela ranks eighth at the world level in reserves: 195 TCF. There is a strategic problem though: 90% is oil associated gas. For this reason, the Bolivarian Government enacted the Organic Law on Gas Hydrocarbons, whereby it created a legislation to set the appropriate conditions in search of non-associated gas. And we have been working on it and are particularly focusing on the addition of non-associated gas reserves. Today, we have evolved with respect to 1998, and we started with a significant hike of our gas reserves not associated to oil production; 35.5 TCF of gas. Later on, we will take a look at some gas-related, interesting aspects in order to develop these reserves.

We have a substantial base of oil and gas resources. Let us tackle strategic horizons for production. We want to show this slide although it may be not necessary. We have been questioned because in 2005 we made some estimates of the goals of our Oil Sowing Plan. Nevertheless, I think that all of us who have made plans here know that a plan has a strategic aim. However, you need to be able to adapt to the situations as they emerge and adjust the plan; otherwise, you would be frittering money away; you would be building on superfluous capacities and things.

This is an OPEC view of oil demand; a panorama from the change in 2005 to the view of 2012, now cemented. It deals with demand distribution, slower demand growth, particularly because of the US economic crisis, which began in 2008 and it is not over, and the current crisis in the so-called euro zone. All these elements compromise the world demand level. We continuously adjust our projects and views, because when we proclaim that we are to produce a selected amount of oil, it is in the context of OPEC; it is not an anti-OPEC policy; it is the remaining room in the market for OPEC countries.

Our plan is based on that. We have worked since 2008, when we began to work on this subject, because accomplishing these plans is not easy. The plan involves 529 projects; it is a complex plan of multi-million investments. We submitted to our authorities and ultimately to President Chávez the new strategic horizons for oil and gas production. It was approved and we are working on it at fast pace. Our strategic horizon for oil production indicates now an output level by 2014 of 4,084,000 bpd. It is a target by 2014, and we also have a target according to our resource base, by 2019, of 6,260,000 bpd. Sure enough, this is backed by all our production, but particularly by the Orinoco Oil Belt growth. Growth is located at the Orinoco Oil Belt.

This is our horizon for oil production, provided that we include the fluids of natural gas, and the horizon for gas production, of course. Presently, we produce 7 billion cubic feet of gas per day. The domestic market uses 2 billion cubic feet per day. We expect to reach by 2014, 9.58 billion, and by 2019, 13.35 billion of cubic feet per day. These are our strategic goals for oil and gas production.
 
Disclosure is our goal here; this is a public presentation and we will post it on the website because all this material is also public. Everything is being bradcasted via videoconference, nothing is behind doors. Here our goals go on oil and gas production, refining capacity, global refining, rigs/year, drilled wells and oil exports. And here, some figures. our national refining capacity by 2012: 1,370,000; our international capacity: 1,610,000; in 2019, our national refining capacity: 1,780,000; our international refining capacity, 2,380,000.

Look at the issue of rigs; for us it is critical. This year we will have 373 operating drills; in 2014, we will count on 417; in 2019, 533. You will see that most of them are concentrated on the Orinoco Oil Belt. Additional wells to be drill amount to 7,814 in 2012; 8,177 in 2014; 9,259 in 2019. Oil exports, here they go: 2,470,000 in 2012; 3,420,000, and 5,600,000. These are our goals.

Let’s now refer to our markets. We are working hard on this; for this reason, you find at the Orinoco Oil Belt 27 companies from 33 countries, because we are to diversify ourselves; we will keep on sending oil to the United States and will remain there; we will widen our oil shipments to Europe and will remain there; we will expand our oil shipments to Asia, and we are increasing, have increased and will continue increasing our oil shipments to Latin America and the Caribbean. For this reason, all our agreements at the Orinoco Oil Belt are tied to a market. This is what we intend to do. We would not want to contribute to the speculative market or the spot market. Instead, we seek to bind everything to a supply agreement, as we are doing with China, India, Japan, with all the countries with which we are executing agreements.

Our investment plan, again: in 2013-2018, we need US$ 236 billion. I announce to those annoyed at our debt, we will contract more debts, because we need US$ 236 billion. We expect our partners to supply US$ 44.72 billion, and they are supplying it. And we need to provide or look for the remainder; raise funds and supply that. It is an expansive plan of our production that needs funding.

This is the distribution of such investment in core amounts, exploration and production take 32%; CVP, 25%, or US$ 79 billion; refining, US$ 17 billion; new refineries, upgraders and terminals, US$ 59.11. Such is the allocation. Gas, as well, accounts for US$ 24 billion. This is what we envisage in our plan; there are exactly 525 projects, major projects. These are the projects related to Cavecon; it is a tremendous challenge for all of us.

I wanted to drop a comment for the domestic parties that are here, the Petroleum Chamber, the Construction Chamber, all the firms that are present here, all the sectors: there is a line of work here; there is an opportunity here. For those who know us, I am proud to be a minister of Commander Chávez for ten years. Those who know us are aware that President Chávez, the Bolivarian Government, has clearly and seriously spoken. Perhaps some companies do not like the motion; others do; we are on our way; at different levels of enthusiasm, yet we go together. This country offers such possibilities.

Our foreign partners are onboard; they are embarked upon their joint ventures; we make an appeal to our national related sector. A lot needs to be done. We bore witness to the amount of rigs, the amount of wells. I can imagine that minds must be working, thinking about getting involved in this subject. I have mentioned banks, financial institutions, the whole sector related to us here. We can regard this as a high chance.

Look at the issue of procurement. We are breaking with structural bottlenecks, such as lack of railroads. We will overcome such restriction. We have invested billion dollars in railroads. The issue of production of input and domestic goods is also a restriction. What we will do? Will we continue importing all that? Will we continue bringing in everything from Houston, Singapore, other industrial compounds? For instance, the hydrocarbons sector in Brazil has a great advantage: an industrial base supports it; they make platforms, vessels, everything.

We have set this as a goal. In this sense, it is important to prevent misinformation from sidelining important, ample sectors. We will make it anyways; it is just that we would like to make it along with domestic parties, I mean, it would be more satisfactory. Anyway, this is our procurement plan; the forecast by 2012-2018: US$ 90.16 billion. We would like to get most of it from the very country; do it here.

Listen, we had problems with pipes; we need more than 300,000 tons of steel for pipelines. Well, we had to buy all those manufacturing plants, all of them. Nowadays, there is Battle of Juncal; today there are valves factories. We have all those factories and we are making investments and expanding capacity as part of an activity that should have been carried out by Venezuelan private parties. Anyway, we do it ourselves; because we need the pipes. I will not let the Oil Sowing Plan stop because there are not appropriate pipes. If I cannot make them here, then, unfortunately, I will bring them in; but I will have them anyways. This is the case with valves, with the rigs that are being manufactured by our fellows here. I send my regard to the fellows at CVP, our joint venture of rigs. Probably, very few here know the site. It is located in Palital, River Orinoco, inward the Orinoco Oil Belt. Our fellows, a bunch of young people, are making rigs together with the Chinese. That’s it, we will have them after all.

We call on the sectors gathered here; this is the bare truth; we are not speculating, nor campaigning. We are ruling; this is a set plan. And we are making headway; be sure: nobody is to stop us. We will complete this plan, and we require all the efforts of our foreign private partners, our domestic company which, fortunately, is mighty, and the whole effort and involvement of the private sector.

These are numbers. I always want to show them to have a clearer view of these subjects.

Jobs: we are recruiting youngsters from all national universities. We have the Belt Battalion; they are 700 youngsters. When you visit the Orinoco Oil Belt, as you certainly have done, you will meet them all: from Central University of Venezuela, East University, Andes University, Bolivarian University, all of them are young people building their country and their homeland. This year, we need 12,000 workers, including artisans and professionals, at the Orinoco Oil Belt. There is a reality over there: that is moving, seriously moving.

Those who have known us here for ten years, who have listened to our speech, understand that we went through a strong destabilizing period; the coup was not mean feat; here a president was ousted; Commander Chávez came back; here an oil sabotage was conducted; we lost US$ 18 billion; we recovered; regained our goodwill, our production, everything. Afterwards, adjustment of our legal framework and tax system came because it was untenable. No business that cannot be politically and socially sustained is possible. Then, the whole nationalization period came, and lastly, we launched our Oil Sowing Plan.

Like it or not, grant it that we have followed a constant line and we will accomplish it. The Government lays the foundations for it; we are focusing now on the Orinoco Oil Belt. Commander Chávez has pledged to materialize this plan, and it has a day and time.
 
We will refer briefly to the Orinoco Oil Belt; later, we will address gas, and after that, we are done. Nowadays, the issue of the Orinoco Oil Belt is our focus point. We are familiar with the geographic area of the Belt. We will arrive up there, at the Aguaro-Guariquito national park. We are not to touch this park. Therefore, the Belt would arrive untill that point, from the oil standpoint. I say so because in Colombia I had a talk with Minister Cárdenas in an excellent, quick meeting. I came from Havana, where I had joined Commander Chávez. We held the meeting and returned here. That is, the purpose of my visit to Colombia was the meeting with the minister. I warned him: “Minister, beware!”

Can you believe -most of you who are oil people- that some owners of companies have told to the Colombian audience that the Belt stretches to Colombia? This makes the stocks of some Colombian companies rise or drop. They have tried to convince Colombian authorities of the Belt being sort of endless. We offered them all our surveys and drillings on the Apure-Barinas basin. We have surveyed them a lot and know that a plug is here, and Guayana massif is here; because the hydrocarbon was likely to turn round here and go down. For this reason, it was important to know where the Belt ends and what is the Belt. We invited Colombian authorities to PDVSA Intevep and explore all that, for them not to be deceived by some swindlers who are making money with misleading information.

This is our beloved Belt. That is its geographical location, Orinoco River, and all that we know already; 55,000 square kilometers. These are our joint ventures with our partners, who abide by our laws, our tax system and count on our support; they count on our support for us to succeed in our joint plan. In Boyacá, Junín, Ayacucho, Carabobo, we have our partners Petrovietnam, ONGC, Chevron, TNK-BP, CNPC, ENI, Statoil, Total, Repsol, Petronas, Japan with Inpex, Suelopetrol, all of them. They are our partners. Again, our partners can count on us. We have met with our partners to explain this plan behind closed doors; to elaborate on tax conditions; to dispel their doubts; to allay their concerns. We are all together in this plan.

Here there are our companies of the joint ventures resulting from the Carabobo processes, endorsed by the National Assembly, namely: Repsol, ONGC, Chevron, Inpex, Petrovietnam, CNPC, ENI, Russian consortium Gazprom, Rosneft. Well, all the companies; they have 1,290,000 barrels in approved rights.

Oilfields at the Orinoco Oil Belt, new developments, will produce this year 165,000 bpd, and we will strike, as we saw in the chart of the strategic horizon for production, 2,094,000 bpd. Here there is the input of all this; growth, of course, in 2016; the leap with the advent of the upgraders we are to build here; the confluence of very important activities. This slide is just an indication, of course.

We, at the Board of Directors, reviewed all the tendering and award of projects for these large gas pipelines, the Araya terminal. We held weekly meetings at the Orinoco Oil Belt, the Belt senior-level body, that is, all the policy makers responsible for the Belt. I act as the coordinator; Eulogio Del Pino is responsible for our activities there: five upgraders; two refineries; 565 clusters; 13,550 drilled and production, connected wells; terminals in Punta Araya –a giant terminal is to be built there; Punta Cuchillo in Jose; tanks, for a total capacity of 15,500,000 barrels; oil pipelines; 1,495 kilometers of pipelines. These are the Belt major projects; we set up a whole structure; we organized Executive Director’s Offices; upgraded all the people accountable for the Belt; created organizations to manage infrastructure, oil, non-oil projects. We are focused on there; we spend our time over there.

Our meetings include one day in San Diego de Cabrutica; another day in Morichal; some other day in San Tomé. We are all over the Belt, paving the way for this to be a success, as it will be. And we will not stop; we have been instructed by the President. That is what we were discussing with the Colombian Government, the oil pipeline; that is, the Belt. We will have access on to Colombia. We are working on it and have submitted this proposal to third investors for them to take part.  The intention is joint access on to the Pacific for our crude oil and the Colombian production over there. This has not been brought forward here, yet we will lay oil pipelines between El Palito Refinery and Paraguaná Refining Center, because everything will be fed from the Belt. Future growth of our production will repose on the Belt.

West basin, although oil is depleting, moves up with gas. We will have the chance of levering our operations up with the existent development in the Gulf of Venezuela. We have developed this advantage to avoid endangering our operations there. Notwithstanding, the Belt does not belong exclusively to us; it is not merely an oil project. Together with the Vice-President Office of Territorial Development and Commander Chávez, we have explored some topics, in addition to the oil subject. We have pinpointed large areas. They are not distinct here, yet they are focus points where we will carry out activities, to wit: oil and non-oil works; storage terminals; all that in this area. There are also the works in River Orinoco; towards that area as well; our refinery will be located there, with Ciudad Bolívar as a hub, along with Palital.

This chart is together with Santa Cruz del Orinoco, and that is the refinery which comes up to Caicara del Orinoco. I mention this because we are creating the ideal conditions in special areas, different driving forces. Sure enough, this is still at the study stage. It has been submitted to the President; we have explored it in Havana, here in Caracas. The President masters this blueprint; actually, it is his idea, his vision of how to deconcentrate the country.

To the private sector: we meant to show this, because we are establishing socialist bases, vast equipped areas for service providers to join us there. We will create the conditions on the ground, infrastructure; facilities beside our operations. Several industries have been envisaged in Cabrutica: drilling fluid; operating bases for well servicing; special affairs, fertilizers; inputs; chemicals; solvents and oils; lube oils; everything that might be needed there. That is the portion of Chaguaramas. We have envisaged another industrial cluster: well shootings; drilling rig servicing; power records; directional drilling; sands control; in a nutshell, most of PDVSA Services will be headquartered there.

That portion of Palital; down here; near; beside the bridge; that is, on the northern part of the bridge, holds the Chinese industry of drilling rigs. Mobile plants for infrastructure development are located there. We are making fast provision for it; drilling cores; electrical machines, the entire activity.

As to industrial sectors, I would like you to bear something in mind. Here, at the Orinoco Oil Belt, we are to produce, along with new businesses and own production, 3,000,000 bpd of oil, which is the current output. And either we build an industrial and service infrastructure there or end up bringing it from Brazil or China. Either we assemble our infrastructure there –and for that purpose the State will be involved- or those things will have to be brought in from foreign countries, because the drill will not stop. There is an activity; there are oil pipelines; and this activity is a tremendous opportunity, yet there is the need to join it.

We cherish a superb production plan at the Orinoco Oil Belt. This year, we will have a domestic output capacity of 3,500,000 bpd of oil. When demand destruction is over, economy will recover, and oil is required –as some OPEC ministers mentioned some time- sure enough, very few countries will be able to supply the market and we want to be there.

We are working on this capacity, particularly at the Belt. Certification at the Orinoco Oil Belt of 272,000 barrels is worthless if we cannot recover it. Let us recover them, let us make them produce. Our capacity will be enhaced by two main plans: our supplementary activities related to recovery, decline and usual activities, and an extraordinary plan at the Belt, that must make us produce additional 766,000 barrels, including decay at the Belt.

We have an extraordinary plan, namely: Plan Carabobo. We have called upon our workers and will reach at the Belt an output of 1,635,000 bpd.

New developments are there. We call it early production. We have emboldened our partners to get involved, in accordance with the conditions of the agreements we have executed for the projects. This implies that we will have 373 drilling rigs nationwide. For the Belt, we will have 202 drilling rigs particularly for production. We need to construct 70 clusters and add 790 wells. We are checking procurement on a weekly basis: materials, works, contracts, and so forth.

A fund of US$ 5 billion is available for this plan only. This year, US$ 5 billion are required; US$ 100 per additional barrel; new barrels we have there. Anyhow, take up my invitation to the Belt.

In relation to gas development, we cannot underestimate gas or leave it as an appendix to this presentation. It is a policy of our own; it is a correct policy; it is a policy that has to do with utilization of part of our natural resources that used to be aired and dumped and spurned in oil production.

We have made reference to our record gas production of 7,000. This, of course, has to do with the decisions made within the framework of the Gaseous Hydrocarbons Organic Law; development of Anaco fields and, subsequently, San Tomé and the whole ongoing production.

This map depicts the development of gas projects at Paraguaná Peninsula and Sucre state, where Mariscal Sucre projects are moving faster; projects at Gulf of Paria, where we have granted licenses; projects at La Blanquilla, where we are still at the stage of exploration; Delta Platform, pending the completion of the process of  joining oilfields with the Trinidadian Government; this process is well advanced; major findings at Rafael Urdaneta project together with ENI and Repsol; 9.5 is recoverable. These are gas projects where we need to make the same effort as in the Belt.

We have talked about it and discussed it to include early production of the Rafael Urdaneta project in Cardón IV block here, in our country. This is a golden opportunity   for petrochemical projects, as they are related. Besides gas, we have a significant volume of condensates and will produce a substantial amount of 40,000 barrels of condensates.

So these are the most advanced projects. Few days ago, we visited the Mariscal Sucre project to inspect our gas pipeline. In Francisco Bermúdez, 478 kilometers of pipeline have been laid down, interconnecting Margarita from Güiria; Margarita to Barbacoas. Such interconnection already exists; we are working on it. Afterwards, we will make an interconnection with northern Monagas. All the gas from Mariscal Sucre will enter the CIGMA. At CIGMA, the gas will be conditioned in the inner phases and next comes the phase two, for gas export.

Let me remind you of a difference in our gas pipeline. Formerly, at the National Gas Agency, that was a quarrel. The country was disconnected; export was inexistent; not anymore. Interconnection with Colombia exists, and we strive now to cover all the development of the Belt, which will need gas. So this gas nationwide plan is been accomplished. Interconnection with Colombia and the possibility of export is contained in an agreement; it is inked. Afterwards, we will take the gas out to Colombia. We are ascertaining with Colombian authorities whether to subsequently take overland this gas to Panama; export it to Ecuador by means of an interconnection with the South. It is a chance of early export of the gas of Cardón IV. This is what we have tackled with our foreign partners.

We will quickly talk about refining. I cannot understand why they keep on sayning we are not investing in refining. Asdrúbal Chávez and Jesús Díaz, present here, bear witness. They have a tremendous amount of financial resources for refining throughout the nation: US$ 34.58 billion. These are not plans, but ongoing projects on deep conversion at Puerto La Cruz and El Palito refineries; the Battle of Saint Inés project is underway; the agreed refinery at Jose is at the engineering stage; streamlining of Paraguaná Refining Center is also at the engineering stage; finally, Cabruta refinery, in the process of negotiation, although we have made headway with engineering.

All these refining compounds are adapting to the future production at the Belt; expanding new facilities, such as the refineries of Cabruta, Battle of Saint Inés, and Jose.

We, at the Board of Directors, noticed the possibility of turning some upgraders into refineries, because an upgrader is an uncompleted refining step. We have made a decision already. We are particularly focusing on the possibility of Petromonagas. All those studies have been conducted to have soon more refining capacity here in the East of Venezuela to process our crude oil and subsequently, the process of petrochemicals.

We have these foreign refineries, the Jamaica refinery; the refinery we are making along with Cuba is operating and will be expanded. Progress has been made with Eloy Alfaro refinery; the negotiations will continue. The refinery in Chile; we are working on engineering, and refineries in China. When they upheld that we could not place the crude oil in China, we retorted that we will make refineries able to process crude oil from the Orinoco Oil Belt, and this is what we are doing.

Wonderful things are taking place; some people have heard abouth them, while others have not. It all depends on the tuned up channel. We brought in those huge frames to handle coke in Jose and we are producing 12,000 tons of coke per day.

Likewise, we produce over there, in Zulia state, a large amount of coal. Well, this should be given to the Belt. All the power generation will be based on coke. We have made an agreement with the Chinese, as well as the Japanese. Well, in order not to have the aggregate on the blueprint, we need to continue dealing with these topics. That is our “4 de Febrero” Van Dam platform; we are very proud of it.

This chart shows the great work made by our engineers, our workers, the experience of Mr. Van Dam; we were together when it was sabotaged.

When we nationalized the projects with Conoco, they took the plans away; they thought that we could not move forward, yet we advanced, we made it. There it is! It´s a marvel! There operations continue as our young fellows do it as well every day.

Impressive things are happening offshore; we have a very important agreement with Technip; we appreciate the support in all offshore operations; we are already at the stage of placement of underwater production heads. These are the devices for gas early production. We intend to bring this gas in our coast ending 2012. This is moving forward. The underwater pipeline has been laid down; it has been procured; it is in Cumaná; it is being coated. This is an issue.

Let us talk about this case. We tried to persuade a Venezuelan businessman to enter into a joint venture with us to lay down the pipeline. It was not possible. We had to take these pipes out to Trinidad. Nobody will stop us. Of course, the work goes out, yet it is plenty of lost opportunities. That is in Cumaná. We went there to see it; we procured it; the most difficult thing, and we are laying it with all this equipment, that cutting-edge technology that costs us a lot of money, in order to bring that gas inland. We are making the Mariscal Sucre project with all our efforts; we have gone through the most difficult part. Now the gas will reach all the facilities. Most of the equipment was made overseas; some other was made by us here. We sent some of our boys to Egypt; over 60 engineers for these projects; these are huge facilities, and those are our workers.

Let me tell you that our workers are our main resource. I would like to make a closing remark. At the time of the nationalization of the Orinoco Oil Belt, ExxonMobil was the boss on these premises. These boys were trained; we recruited 40,000 people on that May 1, 2007.

Our President, aware as he is of every affair, no matter the terrible ordeal he has undergone, including coups, threats, sabotage, but also his personal health, is recovering, going ahead, doing well. He instructed us to stop nothing here; we need to advance all the plans and all the proposals we have submitted to the country.

President Commander Chávez and workers ensure continuation of all these policies and plans. It is a keyword: governance. We said so here when our workers, the Patriotic Committees were sworn in together with Commander Chávez. The fact is that we acknowledge Commander Chávez as our chief and our leader in this process. I am positive that this is a plan for the whole Nation, with a distinct outlook of building of a country; which will be welcomed, as it is, by the majority, by the Venezuelan people. Notwithstanding, it should gather the whole community to join efforts in the hydrocarbons sector. It is not any plan; it is an extraordinary plan by means of which we will be able to make the whole country fix its eyes upon the Orinoco Oil Belt: It will enable us to develop a certain resource base we have here and mobilize as never before the whole youth and all the productive forces and our workers to achieve these goals. For this reason, I am certain of our victory and I am sure that there will be independence and a socialist homeland. We shall live! We shall prevail! Thank you very much.